# Finance Chapter 6

 What is the future value of \$11,600 invested for 17 years at 7.25 percent compounded annually?Multiple Choice\$32,483.60 \$27,890.87 \$38,991.07 \$41,009.13 \$38,125.20 \$38,125.20 You own a classic car that is currently valued at \$64,000. If the value increases by 2.5 percent annually, how much will the car be worth 15 years from now?Multiple Choice\$94,035.00 \$86,008.17 \$80,013.38 \$92,691.08 \$91,480.18 \$92,691.08 You are depositing \$3,000 in a retirement account today and expect to earn an average return of 7.5 percent on this money. How much additional income will you earn if you leave the money invested for 45 years instead of just 40 years?Multiple Choice\$25,723.08\$23,581.80 \$22,441.56 \$18,908.19 \$19,590.93 \$23,581.80 You just received a \$5,000 gift from your grandmother. You have decided to save this money so that you can gift it to your grandchildren 50 years from now. How much additional money will you have to gift to your grandchildren if you can earn an average of 7.5 percent instead of just 7 percent on your savings?Multiple Choice\$39,318.09 \$39,464.79 \$38,211.16 \$37,811.99 \$37,811.99 Luis is going to receive \$20,000 six years from now. Soo Lee is going to receive \$20,000 nine years from now. Which one of the following statements is correct if both Luis and Soo Lee apply a 7 percent discount rate to these amounts?Multiple ChoiceThe present values of Luis and Soo Lee’s money are equal. In future dollars, Soo Lee’s money is worth more than Luis’s money. In today’s dollars, Luis’s money is worth more than Soo Lee’s. Twenty years from now, the value of Luis’s money will be equal to the value of Soo Lee’s money. Soo Lee’s money is worth more than Luis’s money given the 7 percent discount rate. In today’s dollars, Luis’s money is worth more than Soo Lee’s. You want to have \$1 million in your savings account when you retire. You plan on investing a single lump sum today to fund this goal. You will earn 7.5 percent annual interest. Which of the following will reduce the amount that you must deposit today if you are to have your desired \$1 million on the day you retire? I. Invest in a different account paying a higher rate of interest.II. Invest in a different account paying a lower rate of interest.III. Retire later.IV. Retire sooner.Multiple ChoiceI only. II only. I and III only. I and IV only. II and III only. I and III only. Wainright Co. has identified an investment project with the following cash flows. Year Cash Flow 1 \$ 720 2 930 3 1,190 4 1,275 If the discount rate is 10 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Present value \$ What is the present value at 18 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Present value \$ What is the present value at 24 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Present value \$ At 10% rate:YearCash flow, CF10% factor, {1/(1+0.1)^n}Present value, CF × factor17200.9091654.55229300.8264768.55231,1900.7513894.04741,2750.6830870.8253,187.976Answer: The present value at 10% rate is \$3,187.98.At 18% rate:YearCash flow, CF18% factor, {1/(1+0.18)^n}Present value, CF × factor17200.8475610.2029300.7182667.92631,1900.6086724.23441,2750.5158657.6452,660.005Answer: The present value at 18% rate is \$2,660.01.At 24% rate:YearCash flow, CF24% factor, {1/(1+0.24)^n}Present value, CF × factor17200.8065580.6829300.6504604.87231,1900.5245624.15541,2750.4230539.3252,349.032Answer: The present value at 24% rate is \$2,349.03. Toadies, Inc., has identified an investment project with the following cash flows. Year Cash Flow 1 \$ 1,375 2 1,495 3 1,580 4 1,630 If the discount rate is 8 percent, what is the future value of the cash flows in year 4? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Future value \$ If the discount rate is 11 percent, what is the future value of the cash flows in year 4? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Future value \$ If the discount rate is 24 percent, what is the future value of the cash flows in year 4? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Future value \$ Year CF FV @8% Value FV @11% Value [email protected]% Value1 1375 1375*1.081.081.08 1732.10 1375*1.11*1.11*1.11 1880.49 1375*1.08 1732.10 137508*1.08 1732.10 1375*1.111.111.11 1880.49 1375*1.241.241.24 2621.612 1495 14951.081.08 1743.77 14951.111.11 1841.99 14951.241.24 2298.713 1580 15801.08 1706.40 15801.11 1753.80 1580*1.24 1959.204 1630 1630 1630.00 1630 1630.00 1630 1630.00Total 6812.27 7106.28 8509.52 What is the future value of \$12,000 a year for 40 years at 11.5 percent interest?Multiple Choice\$8,278,406 \$8,014,195 \$7,711,414 \$7,989,476 \$8,021,223 \$8,014,195 Rosina plans on saving \$2,000 a year and expects to earn an annual rate of 8.8 percent. How much will she have in her account at the end of 43 years?Multiple Choice\$806,429 \$838,369 \$997,407 \$831,532 \$908,316 \$831,532 You are borrowing \$21,800 to buy a car. The terms of the loan call for monthly payments for five years at 8.25 percent interest. What is the amount of each payment?Multiple Choice\$387.71 \$391.40 \$401.12 \$439.76 \$444.64 \$444.64 You borrow \$230,000 to buy a house. The mortgage rate is 4.5 percent and the loan period is 25 years. Payments are made monthly. If you pay the mortgage according to the loan agreement, how much total interest will you pay?Multiple Choice\$160,408 \$147,027 \$153,524 \$164,319 \$141,406 \$153,524 Island News purchased a piece of property for \$1.36 million. The firm paid a down payment of 12 percent in cash and financed the balance. The loan terms require monthly payments for 10 years at an annual percentage rate of 4.75 percent, compounded monthly. What is the amount of each mortgage payment?Multiple Choice\$12,548.18 \$13,419.97 \$13,607.11 \$14,878.15 \$12,301.16 \$12,548.18 Your car dealer is willing to lease you a new car for \$190 a month for 36 months. Payments are due on the first day of each month starting with the day you sign the lease contract. If your cost of money is 6.5 percent, what is the current value of the lease?Multiple Choice\$10,331.03 \$6,232.80 \$9,197.74 \$7,203.14 \$11,008.31 \$6,232.80 Your great aunt left you an inheritance in the form of a trust. The trust agreement states that you are to receive \$2,400 on the first day of each year, starting immediately and continuing for 20 years. What is the value of this inheritance today if the applicable discount rate is 6.75 percent?Multiple Choice\$24,890.88 \$26,311.16 \$27,677.34\$28,909.29 \$29,333.33 \$27,677.34 What is the future value of \$3,500 in 19 years assuming an interest rate of 8.8 percent compounded semiannually? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Future value \$ Future value = (Present value)*(1+r/t)^ntWhere, r = annualised rate of interest = 8.8%t = compounding frequency = 2n = number of years = 19Present Value = \$3,500Therefore, Future value = (3500)(1+0.088/2)^(192) = \$17,975.75 Gold Door Credit Bank is offering 5.9 percent compounded daily on its savings accounts. You deposit \$4,300 today. How much will you have in the account in 5 years? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Future value \$ How much will you have in the account in 10 years? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Future value \$ How much will you have in the account in 20 years? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Future value \$ Future value \$ 5775.31 Future value \$ 7756.78 Future value \$ 13992.47 What is the value of your annuity today? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Present value \$ What happens to the value of your investment if interest rates suddenly drop to 5 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Present value \$ What if interest rates suddenly rise to 15 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Present value \$ Present value \$ 63851.73 Present value \$ 93446.58 Present value \$ 46944.99 The present value of the following cash flow stream is \$6,710 when discounted at 6 percent annually. Year Cash Flow1 \$1,000 2 ? 3 1,300 4 1,900 Required: What is the value of the missing cash flow?Multiple Choice\$3,490.71\$2,510.00\$3,561.95\$3,633.19\$3,170.12 \$3,561.95 a-1 What is the present value of the payments if they are in the form of an ordinary annuity? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Present value \$ a-2 What is the present value if the payments are an annuity due? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Present value \$ b-1 Suppose you plan to invest the payments for six years. What is the future value if the payments are an ordinary annuity? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Future value \$ b-2 Suppose you plan to invest the payments for six years. What is the future value if the payments are an annuity due? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Future value \$ …
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